Breaking Down Europe's 2010 Bond Issuance

With the ever increasing, and rightfully so, interest on European gross and net bond issuance, we present BofA's latest calendar breakdown of weekly and monthly Bond and Bill redemptions, coupon payments and gross issuance for the key European countries. Using this data, one can determine the net financing needs by country by month, to determine when a supply squeeze is likely to occur. As can be seen, there is a cash crunch for the Eurozone in the Feb-April period as €324 billion in near-term Bills have to be rolled over, while for Bonds the redemption peak hits in Q3, when €176 billion in Bonds have to be redeemed, while coupon payments peak at the same time. Focusing on rollover risk indicates that while Spain, whose 21% of debt rollover concern had been discussed previously, is at risk, Italy is just as much in jeopardy, with 20% of debt requiring to roll in 2010. Another potential flashpoint is the country of Austria, which is only second to Portugal (77.1%) in the amount of debt held by foreigners, at 76.3%.

Below are summary supply forecasts by country for the balance of 2010.

And this is full monthly Bond/Bill redemption and coupon payment schedule. The green highlighted cells indicate if net bond issuance to date has covered borrowing needs for the month, assuming issued amount is purely for bond redemption and coupon payments. Of all countries, Ireland may be most in the clear from a funding perspective.

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As can be seen, there is a cash crunch for the Eurozone in the Feb-April period as €324 billion in near-term Bills have to be rolled over, while for Bonds the redemption peak hits in Q3, when €176 billion in Bonds have to be redeemed, while coupon payments peak at the same time. Focusing on rollover risk indicates that while Spain, whose 21% of debt rollover concern had been discussed previously, is at risk, Italy is just as much in jeopardy, with 20% of debt requiring to roll in 2010.

Given the weakness in the Euro, and the US need for Treasury debt issuance, Uncle Ben and Timmy could really screw the EU nations royally, if they so wanted. My guess is that they won't, as it might spark a huge surge in interest rate volatility worldwide.

The folks at JP Morgan probably wouldn't approve of that... well, unless they are actually counting on volatility with all those derivative bets.

Italy has got a large public debt but an extremely low private debt compared with other UE (world) nations, in this situation watching only the amount of public debt cannot be the right way to describe the situation and rolling now 20% of debt with low rates can be an opportunity.

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